Category: Estate Planning

Estate Planning – Death and Taxes – it is true and not a myth that even upon your death, the tax man has his hands in your pocket. Estate Planning – Efficient Tax Planning and Insurance Planning go a long way to preserve capital and efficiently transfer your wealth to your family the smart and efficient way. Even charities and other benefactors may benefit from your death rather than the government and tax man with your wise planning.

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Google admits that advertisers wasted their money on more than half of internet ads

Online advertising is a fickle thing. It accounts for 20% of the ad industry’s total spending, and over 90% of revenue for the internet giants Google and Facebook. That said, no one seems to have any idea whether it actually works.

That uncertainty reached a new high this week, as Google announced that 56.1% of ads served on the internet are never even “in view”—defined as being on screen for one second or more. That’s a huge number of “impressions” that cost money for advertisers, but are as pointless as a television playing to an empty room.

This is not a big revelation. The web metrics company ComScore reported last year that 46% of online ads are never seen. Spider.io, an ad fraud company acquired by Google in February, has pointed out that a large portion of ads are “viewed” only by robots, revealing that one botnet of 120,000 virus-infected computers viewed ads billions of times, running up the tab for advertisers without offering them the human eyeballs they sought.

Still, the acknowledgement by a heavyweight such as Google that ad viewability is a problem could shake up the industry by delaying possible IPOs of ad companies and requiring new ways for advertisers to gauge the effectiveness of their ads.

The nineteenth-century retailer John Wanamaker famously said, “Half the money I spend on advertising is wasted. The trouble is I don’t know which half.” In this case, it’s the obviously the half that pays for ads which are never seen, and now advertisers are looking for new tools to figure out which those are.

It’s worth noting that Google made this acknowledgement of the deficiency of the model it has profited richly from while also offering a new model to advertisers: In July it introduced its Active View product, which measures only viewed ads.

Ten or twenty years ago, you purchased a life insurance policy. It was part of a good financial plan to keep your family protected in case of the unthinkable. Today, the mortgage is paid off, your family is grown, your retirement plan is in place and the insurance that once provided peace of mind is no longer required. What should you do with the policy?

For most Canadians, the answer is to collapse the policy. Between 85% and 88% of permanent policies never pay out a death benefit. In some cases, allowing the policy to lapse makes sense. Term policies may have no value and served their purpose. Whole Life policies may have significant cash value that you’d rather collect now. In these scenarios, the best course is frequently to relinquish the policies.

There are however other situations in which you have a valuable policy and lapsing the policy gives you little, or nothing, in return. The only benefactor is the insurance company who receives your valuable policy at no cost. Rather than providing a gift to the insurance company you should consider donating the policy to charity. The charity receives a valuable asset and you receive a worthwhile tax credit.
There are three ways to donate a life insurance policy of charity:

1. Name the charity as the beneficiary of the policy
2. Have the policy pay to your estate and have your estate make a donation to the charity
3. Give the policy to charity now, making the charity both the owner and the beneficiary

Each method has advantages and disadvantages; the best option will depend on your own circumstances. We will touch on two important tax considerations.

Premium Payments Tax Credit

Under the first two methods, you keep the policy in force and donate the proceeds upon death. The first method is typically preferred over the second, as it avoids possible taxation, probate and creditor issues in the estate. You will receive a tax credit in the year of death equal to the amount donated, but you do not receive a credit for the premiums that are paid every year.

One advantage of the third method, donating life insurance now, is that each premium payment provides you with a tax credit. The majority of charities require that you continue to pay the premiums after donating the policy.

The policy does not affect the 3% minimum distribution of assets requirement for the charity, as the policy is deemed to have nil value for that purpose. If you will pay the premiums, most charities will be happy to accept the policy and provide a donation receipt for the fair market value of the policy. For smaller charities not experienced in receiving life insurance, outside advice may be required to help facilitate the donation.

Policy Value Tax Credit

Under the first two options, the tax credit will equal the death benefit that the charity receives. The tax credit that you can use is limited to 100% of income in the year of death and the preceding year. The potential downside is that the tax credit can be a large amount which could exceed the income limit. If you will not have significant taxable gains triggered upon death, or a spouse with income to use the credit, then the tax credit will be lost.

One of the advantages of the third method, giving the policy now, is the ability to make better use of the tax credits. Rather than being limited to 100% of income over two years, you can use the credit to offset up to 75% of income in the current year, and in the subsequent five years. Additionally, the donation is made at a time of your choosing, when you know your income will be sufficient to make use of the tax credit.

The tax credit in this case is not the death benefit, as under the first two methods; it is the fair market value of the insurance policy. The fair market value of life insurance is less than the death benefit, but can be substantially higher than the cash value.
Which policies have value more than their cash value? Policies with guaranteed costs, such as level cost universal life, and term to 100 policies can have significant value, despite having low cash values. If your health has worsened since the policy was issued, then almost any policy has extra value. A fair market valuation actuary specialising in donating insurance can be consulted to help you determine whether your policy would be valuable to a charity, and how much of a tax credit you would receive.

A tax avoidance strategy has been growing in popularity in recent years. Although CRA has been aware of the strategy for over ten years, its increase in popularity and the Federal government’s current focus on reforming the taxation of insurance means that the life of the strategy may be coming to an end.

There are several good reasons for life insurance to be owned corporately rather than personally. A business owner is typically a key person of the business, and any buy-sell agreements or business interruption applications may require that the policy be owned corporately. Corporate ownership also allows for the payment of premiums with corporate dollars, which for small businesses generally have a lower tax rate than if the policy is owned personally.

There are of course also downsides. The loss of creditor protection, a potential impact to the capital gains exemption, additional complexity and accounting requirements, and the potential taxation of the death benefit are among the impacts to consider. Properly planned, these issues can be minimized, making corporate ownership an attractive option.
The corporately owned policy can be a newly issued policy, or could be a personally owned policy that is sold to the corporation. The latter may be the only option if health concerns make it costly, or even impossible, to obtain a new policy.

The sale of a policy from personal ownership to corporate ownership introduces a little used, until recently, tax savings opportunity. In exchange for the policy the corporation pays the individual the fair market value of the policy. The gain reportable to the individual is based on the cash surrender value of the policy rather than the fair market value, the two of which may differ substantially.

In many cases the taxable gain to the individual is zero, effectively resulting in a tax free disbursal of earnings from the corporation.

Overview of the transfer

A shareholder transferring a policy to his or her corporation is making a non-arm’s length transfer and therefore subject to Section 148(7) of the Income Tax Act. In exchange for the policy the company pays the shareholder the fair market value of the policy. The tax consequences consist of four parts:

Deemed Disposition – The shareholder who owns the policy is deemed to have disposed of the policy for the cash surrender value (CSV). The taxable income to the shareholder will be the CSV minus the Adjusted Cost Basis (ACB).

New Adjusted Cost Basis – Section 148(7) also deems the new ACB after the transfer to be equal to the CSV. The corporation has acquired an interest in the policy at the new ACB.

Payment for the fair market value – The corporation pays or provides a note to the shareholder for the fair market value of the insurance policy. There is no tax to the shareholder and the company has a reduction in retained earnings.

Payment of the Death Benefit – Upon the death of the life insured, the death benefit is paid into the Capital Dividend Account (CDA) to the extent that the benefit exceeds the ACB. The ACB will typically have enough time to decrease to $0, so the entire death benefit is paid into the CDA, which can then be distributed tax free.

Best Policies to Value

An actuary specializing in fair market valuation can provide advice on the potential value of a policy. The best policies to transfer will result in little or no taxable income upon disposition, and have fair market value that is greater than the cash value. There are several factors which contribute to a policy having a fair market value that is greater than the cash surrender value.

Deterioration in health – Any health problems that reduce life expectancy will increase the value of a life insurance policy.

Policies with guaranteed costs – Policies with guaranteed level premiums build up value over time, as the initial premiums exceed the cost of insurance in order to keep the premiums lower at higher ages when the cost of insurance exceeds the premiums. The reduction in interest rates has further increased the value of such policies, as they premiums were set assuming higher interest rates, and the premiums are guaranteed. Examples of these policies are Universal Life with level cost of insurance, term to 100, and whole life non-participating policies.

Government Position

Although the CRA has stated that they agree with the tax treatment described above, they also feel it is an anomaly and referred the matter to the department of Finance. This position has been confirmed several times in the past ten years. While Finance has yet to take any action, the issue does now appear to be on their radar. The next budget may very well put an end to this opportunity.

There are two advantages to RRSP investing. The first is tax deferred growth, which allows the effects of compounding to grow your assets far in excess of non-sheltered assets. The second is the assumed reduction in your personal tax rate at older ages when the assets will be withdrawn. Both of these benefits may not be as advantageous as they used to be.

RRSP funds should be invested in income generating assets, such as bonds and GICs, which would attract the most tax outside of an RRSP. Assets which return capital gains are best kept outside of the RRSP due to the more favourable tax treatment of those gains. With interest rates at multi-decade lows, and projections that these rates will continue for the foreseeable future, compounded growth will be severely hindered.

With growing government debt loads and lower projected growth rates, we also face the real potential for higher taxes. This may be especially true with respect to retirement assets, which will draw the attention of future politicians struggling to pay for the debt load which, as far as many voters will be concerned, was created by a wealthy retired class.

In analyzing a retirement strategy, it would therefore be prudent to consider the possibility of low investment returns, and higher tax rates. For instance, a 50 year old, earning only 3%/year, with a marginal tax rate increasing from 46% to 60%, by age 71 would have been slightly better off without an RRSP. Assuming investments are based on capital gains the RRSP effectiveness drops significantly.

Most scenarios for the future do still show RRSP investing to be beneficial, especially if it is likely that you will find yourself in a lower tax bracket at retirement. Nonetheless, based on age, investment return, and future tax rates, there will be a percentage of Canadians who would have been better off without registered assets. Those fortunate enough to expect to remain in the top tax bracket should consider whether deregistering all of their assets now would reduce their total tax bill, if tax rates do increase in the future.

They say that you can’t take your money with you when you go, but that doesn’t mean you don’t need your money after you pass on. Many people save their entire working lives in order to have a financial stable retirement, but what about afterwards? Unfortunately, not many people plan for their final estate expenses and this is a big financial mistake.

Why it’s important to plan your estate

As a financial planner I always advise clients to consider their final estate expenses when planning their retirement because the financial planning process doesn’t end at retirement. After we pass on our family is left behind to pick up the financial pieces. Many people don’t plan for their estate because they are not concerned with what happens after they are gone, but before you spend all of your savings – think about your family.

The average Canadian funeral costs approximately $10,000; does your family have that money available to spend?

How you can avoid the financial burden

Estate planning is not complicated; it is just like saving for any other personal goal. There are several ways that you can personally cover the costs of your final estate expenses: you can purchase an insurance policy to cover the costs of your final expenses, you can start saving at a younger age and save a little bit of money over time or you can prepay your funeral expenses to alleviate the financial burden from being passed on to your family.

Before you start saving for your final estate expenses you have to calculate approximately how much they will be. Your final expenses include the cost of your funeral, but they also include your final personal tax filing, your estate tax filing and the cost to repay any of your outstanding debts upon death.

You can also take some of the financial burden away from your family by always having life insurance on your credit products. This ensures that your debts will be paid upon your passing.

When family members don’t have to worry about getting into debt over your final expenses and paying your final estate taxes they can take the necessary time they need to mourn their loss.

LastPostFund.ca Give back to those who gave the most. New $20.00 Remembers Vimy Ridge do you?

OTTAWA, Aug. 27, 2012 /CNW/ – For most of us, references to Vimy Ridge only hint at a distant high school history lesson on the First World War. But with the passing of Canada’s last veteran of the First World War in 2010, it is becoming increasingly important for us to remember the sacrifices of a generation of men and women whose lives were touched by war.

Each November we don our poppies as a symbol of remembrance, but this year we’ll have another reason to pause and take note.

The new polymer $20 bank note will begin circulating in November; its new design may serve as a refresher history lesson on a victorious battle that is often described as Canada’s coming of age.

The back of the $20 note features the Canadian National Vimy Memorial and pays tribute to the contributions and sacrifices of Canadian men and women in all military conflicts. The iconic monument is located in Vimy, France, and commemorates the Battle of Vimy Ridge. The monument bears the names of the 11,285 Canadian soldiers with no known resting place in France.

Poppies also appear on the back of the new $20 note. These images of the flowers that are synonymous with remembrance will soon be seen by Canadians every day.

The Battle of Vimy Ridge

On 9 April 1917, all four divisions of the Canadian Expeditionary Force united for the first time to take Vimy Ridge, a strategically important position in France that had eluded previous attempts by Allied forces between 1914 and 1916.

The Vimy Memorial

Located at the highest point of Vimy Ridge, the memorial was erected on land granted permanently to Canada by France in 1922, in recognition of Canada’s war efforts. The inscription on the base of the monument reads, “To the valour of their countrymen in the Great War and in memory of their sixty thousand dead this monument is raised by the people of Canada.”

Designed by Canadian sculptor Walter Seymour Allward, the limestone monument features two pylons that stand 30 metres high. With a maple leaf carved in one and a fleur-de-lis in the other, the pylons represent the sacrifices of people from Canada and France.

There are twenty sculpted allegorical figures on the monument. Among them is a group known as “The Chorus.” They represent the virtues of Peace, Justice, Hope, Charity, Faith, Honour, Truth and Knowledge. Reaching upward with a torch, Peace is the highest figure on the monument.

Poppies

The presence of red poppies in battlefields and burial grounds throughout Europe during the First World War inspired the symbol of remembrance that we know today. Mourning the death of a friend, Canadian military doctor and artillery commander Major John McCrae wrote “In Flanders Fields,” the now-famous poem that reflects on the living presence of poppies in a landscape devastated by war.

On 11 November, people around the world will pause to remember. With this new $20 note, Canadians will soon have another means to remember—year-round and every time they open their wallets.